Wednesday, October 7, 2009

Shoprite DRC move met with scepticism

October 6, 2009 - By Florence de Vries [Business Report]

Retail giant Shoprite’s trailblazing moves outside South African borders have for the most part, stood it in good stead in the past ten years, but chief executive Whitey Basson’s move into the Democratic Republic of the Congo (DRC) has been met with scepticism from retail analysts who don’t believe trading in the DRC will contribute significantly to the group’s earnings.

The retail group plans to start trading in the DRC by the end of next year or early 2011 after investing up to R400 million. Basson was quoted as saying the group would start trading by the end of next year and that the first two stores would be located in Kinshasa and Lubumbashi.

“We think they are the best two cities to test the waters in. DRC, we think, is quite a wealthy country. It’s quite stable at the moment. It’s got a lot of resources…We know that we can trade there though it’s obviously unchartered waters,” Basson told news agency Reuters. Shoprite operates supermarkets in more than 10 African countries, including Zambia and Angola.

But some analysts believe the DRC move may be all talk and no show as was the case with the group’s move into Egypt a few years back.

“A few years ago, it was the move into Egypt that had us all excited but it was followed by dismal trading performances,” Abri du Plessis, an equity analyst from Gryphon Asset Management said.

Du Plessis said the lacklustre performance in Egypt could be attributed to the “different trading culture” in that country.

The trading performance of the group’s store in India, like Egypt, had performed poorly.

Basson is said not to be interested in opening more stores in India since the Indian government has not given an indication that it would open up foreign investment in retail.

Old Mutual Investment Group analyst, Yasmine Ganief, said it was difficult to work in countries like Egypt and India because of the many cultural and legislative barriers to entry. Both Du Plessis and Ganief said moves into Angola had made perfect sense because of the trading culture and commodity growth in the country.

According to Du Plessis, there is little formal trading spaces in the DRC, which may bode well for Shoprite, but the group had to bear in mind the cultural differences. “People in the DRC are used to buying from corner café’s or shopping from the street and so this may constitute a minute part of the Shoprite business,’ Du Plessis said.